Saturday, September 15, 2007

Term life insurance objections

Here are some objections or questions I get from clients about term insurance.

1) What happens at the end of the term?
Your life insurance policy will renew itself. When it renews, your new rates will be based on your current age. The premiums will remain level at 5 year intervals until age 70. After that age, your premiums goes up every year until age 95. At age 95, you will no longer be covered.

At the end of the term, it is possible for you to exchange the current term policy to another term policy. You do not need to provide proof of insurability unless you are increasing the coverage.

2) At the end of the term, my premiums goes up.
True, but that won't happen for another 20, 30, or 35 years (whatever level term you have). By that time, you probably won't even need life insurance. Why? Take a look at your current situation. You may have a mortgage and some other debts to pay. You may kids dependent on your income. You probably don't have lots of money saved. But in 20-35 years, your kids becomes adults, your mortgage should be paid off, and hopefully you built enough savings to retire on. At Primerica, they teach clients to buy term and invest the difference. Why? So that you can rent wealth (which is term insurance) and accumulate wealth (the investing side) at the same time.

3) I heard that less than 2% of term policies rarely pays up.
While this may be true for other companies, Primerica pays an average death claim of $2 million/day. An average face amount of Primerica term policies is around $280,000.

Basically the phrase "less than 2% of term policies pays up" is a sales tactic used by agents trying to sell you a cash value life insurance policy. While everyone wants to live for a long time, stuff happens and you can't predict when you are going to die. In fact, there is no real evidence on either type of life insurance that says what percentage of life insurance policies gets paid out. If there is evidence, who done the study? Was the study done by a group back up by insurance companies or independent researchers not influenced by any companies?

4) My agent or advisor says that my life insurance builds savings and I can use it anytime.
If you take a look at your life policy, you would see how it is the worst way to build savings. If you wanted to withdraw money out of it while keeping the policy enforced, you would have to borrow it and pay loan interest on it. If you take a look at the total amount of premiums you paid and the amount of cash value accumulated over time, you would see that you are paying at a loss. The time you may break even on your investment is when you are around 100 years old. At that age, your policy may cancel and you will get all your cash value.

If you have a universal life insurance policy, you will see that your cash value starts to grow and then it starts going down. At the end, you see the word "lapse." Even though premiums are level, the cost of your insurance increases internally every year. If you continue the same premium payment plan, your policy will lapse. The only way to avoid the policy being lapse is to pay more premiums than what is required.

At Primerica, they teach clients to always keep life insurance and investments separate. By keeping them separate, there is no such thing as borrowing and paying loan interest. You can withdraw money out anytime and don't have to put it back. If you worry about taxes when you accumulated 6-7 figures on your investments, you are only worrying about it now because you don't have 6-7 figures saved and you always seem to owe taxes when you do your income tax every year. If you talk to any wealthy person out there, they are not even worried about their taxes because they have so much money. Plus the government always seem to keep lowering taxes or giving tax incentives for the wealthy class.

Saturday, September 8, 2007


Definition: (noun) a person who pretends to have virtues, moral or religious beliefs, principles, etc., that he or she does not actually possess, esp. a person whose actions belie stated beliefs.

I find that most life insurance agents and the so-called "financial advisors" are the biggest hypocrites in the financial industry. How can they recommend others buy some sort of life insurance that builds cash value such as whole life and they don't own it themselves? Most people who recommend cash value life insurance either own term insurance or no life insurance at all.

My company (Primerica) believes in term insurance and thats the only type of life insurance they sell. While some companies are selling term insurance, they are doing it wrong. Other companies sell very short term policies that either renews every year or convert into a cash value life policy. At Primerica, their term policies only converts into term insurance. Primerica offers level term policies for 10, 20, 25, 30, and 35 years.

If you are selling life insurance, you better own it yourself before telling others to buy it. That way you understand your product. If you are an agent that owns whole life or universal life, you should ask yourself why you bought it when you know that term insurance is better? I own a 30 year term insurance because its going to take me awhile to build enough savings in my retirement account where I can be financially independent.

As for those who thinks is a good idea to build savings in a life policy, you are a completely brainwash by what others say. If you kept your savings in a life policy, the only way you can access it is by taking a loan or surrender the policy and pay surrender charges. If you die someday, you may lose all your savings in the life policy (you want to check your life policy on what it says about your cash value when you die). There are so many better ways to put your savings. At Primerica, they teach clients to invest in mutual funds. Mutual funds has historically have an average rate of return of 12% in the past 25 years. You can withdraw money from mutual funds anytime and if you die someday, your beneficiary will either get your investments or take control of it. So, if you have investments, you want to make sure you name a beneficiary or beneficiaries on them (you don't want the government to take control of it and decide who should get the money).

Primerica agents teaches clients to invest on a monthly basis by using the systematic investment plan. Well, if you are a Primerica agent, you better be investing on a monthly basis yourself before telling others to invest monthly. I invest $333/month into my Roth IRA and my average rate of return on my investments in the past 2 years is around 14%. How will it do in the future? I don't know, but I'm betting the stock market will never hit zero.

So, it is safe to say I am not a hypocrite because I own term insurance and investments and thats what I tell my clients to do. It is the right thing to do. It is the logical thing to do. It is the smart way to protect our love ones while building wealth.